All Eyes On The Fed

Dec 15 21, 09:34 GMT

The USD seems to remain stable against its counterparts as the market’s attention is turning towards the Fed’s interest rate decision. Inflationary pressures in the US economy were reaffirmed on Friday as the headline CPI rate reached an almost 40 year high for November on a year-on-year level, tilting the market’s expectations for the Fed towards a more hawkish direction. It should also be noted that the Fed’s Chairman, Jerome Powell, in his testimony before the Senate has confirmed that the bank would discuss an expediting of the tapering of the Fed’s QE program.

Market’s expectations seem to include such an announcement as they also seem to point towards an earlier rate hike, with May 2022 being a possible date. Should the Fed actually proceed according to market expectations we may see the USD getting some support, on the other hand, should the Fed disappoint the markets we may see the USD tumbling. Thus, we expect market focus to be on the release of the accompanying statement, Fed Chairman Powell’s press conference, half an hour later but also the Fed’s projections could generate substantial buzz.

The USD index remained rather stable revolving its price action around the 96.15 (S1) level. We tend to maintain our bias for a sideways motion yet the Fed’s interest rate decision could alter the index’s direction. Should the bulls take over we may see the USD index breaking the 96.65 (R1) resistance line. Should the bears take over we may see the Index breaking the 96.15 (S1) support line and take aim of the 95.60 (S2) level.

CPI rates the main event for the CAD

CAD’s weakening against the USD continued yesterday as cautiousness in the market sentiment due to the faster spreading of the Omicron variant tends to have an adverse effect on the CAD. Also, WTI prices slipped below $70 per barrel given EIA’s warning that the commodity’s supply is to exceed demand levels in Q1 next year, intensifying the bearish sentiment for the Loonie.

Today we note the release of Canadas’ CPI rates for November and the core rate is forecasted to slow down and reach 3.6% yoy if compared to October’s 3.8% yoy and if so, could weaken the Loonie as the pressure on BoC to act could ease. On second note we would also note the release of the number of House starts for November which is expected to drop and could also contribute to some bearish tendencies for the Loonie. On the monetary front, later we note that BoC Governor Macklem is scheduled to speak and if he expresses the same degree of cautiousness the bank had shown in its last interest rate decision, we may see the CAD’s bearish tendencies intensifying.

USD/CAD’s rise continued as the pair tests the 1.2855 (R1) resistance line. We tend to maintain a bullish outlook for the pair as long as it remains above the upward trendline incepted since the 8th of the month. Should the pair actually find fresh buying orders along its path we may see it breaking the 1.2855 (R1) resistance line and aim for the 1.2950 (R2) level. Should a selling interest be displayed for the pair we may see it aiming if not breaking the 1.2775 (S1) support line.

Other highlights for today

In a busy day, today we note the release of UK’s CPI rates for November, as well as France’s final HICP rate for the same month. In the American session we get from the US the NY Fed Manufacturing Index for December, the retail sales for November and oil traders may keep an eye out for EIA’s weekly crude oil inventories figure. Also we note the release of New Zealand’s GDP rate for Q3, and during Tomorrow’s Asian session, we get from Australia the preliminary PMI figures for December and most importantly November’s employment data, while from Japan we note the release of November’s trading data and December’s preliminary Jibun Bank manufacturing PMI figure.

USD Index H4 Chart